Despite not possessing hydrocarbon wealth, the Moroccan economy will remain a relative outperformer in North Africa over the medium term. Though 2012 will prove a challenging year as exposure to the European recession takes its toll, investor interest in the country as an export-oriented manufacturing hub for the European market, coupled with a burgeoning tourism industry, will bode well for Morocco's underlying growth momentum through 2015. Despite the increasingly precarious state of public finances, fiscal policy will remain expansionary in the near term. The recently announced budget for 2012 has reaffirmed our view that the government would respond to popular protests about the state of the economy by ramping up spending on social services, subsidies and the public sector workforce.
Major Forecast Changes
We have turned less optimistic on Morocco's growth outlook in 2012. Declining grain yields will hit private consumption, while anaemic growth in the eurozone will leave limited room for an export-led expansion. We have revised down our real GDP growth forecast from 4.0% to 3.4%, though we continue to expect the economy to rebound in 2013, forecasting growth of 4.7%.
Risks To Outlook
Our forecasts for both economic activity and fiscal policy assume that Morocco will benefit from significant inflows of foreign aid from the Gulf Cooperation Council and other organisations in 2012. Should this assistance fail to materialise, it would pose serious downside risks to the country's outlook. Morocco's balance of payments position is steadily deteriorating. Persistently high international commodity prices and weak growth in the eurozone are taking their toll on the current account, while financial account inflows have consistently failed to cover the shortfall. While we are not expecting to see a dirham devaluation in the near term – owing primarily to political considerations – the risks to this view are growing, and the possibility of a devaluation over the next 12 months is no longer negligible.
Table of Contents
Executive Summary
Core Views
Major Forecast Changes
Key Risk To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Benkirane's Government: The First Six Months
May marks the six-month anniversary of Abdelilah Benkirane's appointment as prime minister of Morocco In the following article, we
give our impressions of the prime minister's first six months in office While his election has succeeded in calming the worst of the social
unrest that broke out in 2011, little in the way of substantial political reform has yet been achieved
TABLE: POLITICAL OVERVIEW
Challenges For The Coming Decade: Scenarios For Change
The ongoing political and economic reforms undertaken by the government in recent years underpin our view that Morocco possesses
one of the most stable political climates in the region However, we highlight that the uprisings that erupted throughout the Middle East
and North Africa at the start of 2011 indicate rising potential for further democratisation (voluntary or forced) of the authoritarian regimes
in the region, Morocco included
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Economy Running Into Headwinds
We have turned less optimistic on Morocco's growth outlook in 2012 Declining grain yields will hit private consumption, while anaemic
growth in the eurozone will leave limited room for an export-led expansion We have revised down our real GDP growth forecast from
4 0% to 3 4%, though we continue to expect the economy to rebound in 2013, forecasting growth of 4 7%
TABLE: ECONOMIC ACTIVITY
Balance Of Payments
Growing Risk Of A Devaluation
Morocco's external dynamics are looking increasingly frail The ongoing economic slump in the eurozone is hitting goods and tourism
exports, while still-elevated commodity prices have pushed up the import bill With the current account deeply in the red, the case for a
currency devaluation is growing
TABLE: CURRENT ACCOUNT
Monetary Policy
Room For Another Rate Cut?
Given sluggish economic growth and subdued inflation, there is a strong case for another interest rate cut in Morocco in 2012 However,
with inflation likely to head higher on the back of a poor cereal harvest and growing risks to the country's balance of payments position,
we expect the Bank al-Maghrib to refrain from implementing any further monetary loosening this year
TABLE: MONETARY POLICY
Fiscal Policy
2012 Budget: Four Key Takeaways
Morocco's 2012 budget has reaffirmed a number of our core views concerning the country's fiscal trajectory Government policy is
set to remain expansionary and populist, supporting growth in the near term, but this raises some questions about longer-term fiscal
sustainability
TABLE: FISCAL POLICY
Regional Outlook
Major Obstacles Still In The Way Of Maghreb Unity
In spite of a renewed bout of optimism over the possibility of a revival of the Arab Maghreb Union, we remain pessimistic about the
prospects for further integration While we see several potential advantages stemming from any economic union between the five
'Maghreb' countries – Algeria, Libya, Mauritania, Morocco and Tunisia – we stress that significant obstacles continue to impede
progress towards economic unity
Regional: Sovereign Risk Ratings
Volatile Political Landscape Hitting Creditworthiness
Although the aggregate sovereign risk rating for the Middle East and North Africa remains unchanged at 62 this quarter, the headline
figure masks considerable movement in our individual country ratings In a volatile political climate, we have upgraded our ratings for
four sovereigns, and downgraded five Moreover, the outlook on a sub-regional level continues to diverge, with the major hydrocarbon
exporters outperforming energy importers in the Levant and North Africa
TABLE: MENA SOVEREIGN RISK RATINGS – EVOLUTION OF ABILITY TO PAY
TABLE: MENA SOVEREIGN RISK RATINGS – EVOLUTION OF WILLINGNESS TO PAY
Chapter 3: 10-Year Forecast
The Moroccan Economy To 2021
Private Demand-Driven Growth To Continue
We point to continued efforts to reform the economy and improve education, alongside investment in tourism and energy infrastructure,
as major positives underpinning Morocco's long-term growth trajectory We are pencilling in average real GDP growth of 4 7% a year
over our forecast period to 2021, with GDP per capita increasing to US$6,074 over the same period Nevertheless, we caution that
several issues, such as high unemployment combined with a growing youth population, if not addressed properly could pose serious
threats to our positive long-term view
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Chapter 5: BMI Global Assumptions
Global Outlook
Muddling Along, As Expected
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST 35
